Fed’s Lockhart Says Too-Big-to-Fail Bailouts Still a Risk

Federal Reserve Bank of Atlanta President Dennis Lockhart said he sees a risk regulators would need to provide a taxpayer bailout when winding down a failing financial institution.

“I conclude you can’t yet dismiss too-big-to-fail intervention as a contingency,” Lockhart said today at the conclusion of an Atlanta Fed conference on financial regulation at Stone Mountain, Georgia. “This is more in the vein, to use a medical metaphor, of treatment of a condition that is still with us and likely to be with us for some time as opposed to a cure of an illness that can be declared eradicated.”

The ability to liquidate large banking firms if needed is “a work in progress,” Lockhart, 66, said. “But it is clear that there are many practical matters that have to be tackled, especially the cross-border questions that are really quite complex.”

A former Georgetown University professor, Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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